DA COSTA’S TAKE
If recent market turmoil is any guide, Janet Yellen could be in for a rough transition as she steps into the role of Federal Reserve chairwoman on Saturday.

Global financial markets showed signs of stabilizing Monday after a three-day selloff in emerging economies. Wall Street traders have been quick to link the declines to the Fed’s likely reduction in its bond buying on Wednesday and at future policy meetings. To be sure, the same global capital flows that led to a surge in developing-world assets were bound to reverse eventually. But the rout reflects fears that are more fundamental.

One concern is that major emerging economies, particularly China, cannot continue to deliver the runaway growth of recent years. Another is that open and deregulated global capital markets are inherently unstable and crisis-prone. Several turbulent episodes since the U.S. credit crisis began in 2007, including a near break-up of the euro zone in 2012, have led to additional caution. Such trepidation helps explain why the U.S. economic recovery has been so weak – even with so much support from the Fed.

If the recent market turbulence were to persist or escalate in a manner that threatened the U.S. economy, Ms. Yellen and her colleagues would weigh that along with other factors in deciding how soon to wind down the bond-buying program. Still, it would likely take at least a few months and a serious deterioration in financial conditions before they would alter their forecasts for the U.S. economy. Ultimately, that’s what will determine the path of policy – and it could be a rocky one.

-By Pedro Nicolaci da Costa

MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD

India’s Central Bank Raises Rates. The Reserve Bank of India increased the rate at which it lends to banks overnight by 0.25 percentage point to 8.0%, signaling its resolve to fight rising prices even as the country faces its slowest growth in a decade. This is the third rate hike in five months and indicates the central bank’s continued hawkish stance. The central bank also gave indications that it is hoping that this could be its last rate increase in this round of tightening as some prices are showing signs of cooling. http://on.wsj.com/LjngpR

Turkey’s Central Bank Races to Stem Selloff. Global markets showed signs of stabilizing Monday after Turkey’s central bank said it would convene an emergency meeting Tuesday. http://on.wsj.com/1i6Cfij Turkey’s central bank chief sent a strong signal that it will raise rates the meeting in a bid to stem a month-long plunge in the lira. http://on.wsj.com/1fsD3LS

Argentina Eases Limits on Dollar Buying to Calm Market. Days after a currency devaluation revived concerns of economic crisis in Argentina, the government began allowing locals to buy limited amounts of dollars in a bid to head off potential panic buying of dollars on the black market that could further undermine the currency and fuel inflation. http://on.wsj.com/1fr0ZQ1

Five Takeaways From the Emerging Market Selloff. The three-day rout has revived memories of currency crises in Asia and Latin America more than a decade ago. Here are five things to watch as the troubles brew: http://on.wsj.com/1btwRAm

Kocherlakota Wants Fed to Do More. Minneapolis Fed President Narayana Kocherlakota, who votes on policy this year, calls for more aggressive forward guidance in a New York Times interview. http://nyti.ms/1aDh5so

Bundesbank Floats Wealth Levy Idea for Future Crises. Germany’s central bank Monday proposed a one-time wealth tax as an option for euro-zone countries facing bankruptcy, reviving an idea that has circled for years in Europe but has so far gained little traction. http://on.wsj.com/1jBMGwZ

Chinese Forex Agency’s CIO Resigns: Zhu Changhong–a respected official who played a key role in managing China’s $3.8 trillion in foreign-exchange reserves– has resigned, according to the State Administration of Foreign Exchange. http://on.wsj.com/1jDWDdm

Weidmann Says ECB Must Focus on Mandate. European Central Bank governing council member Jens Weidmann said Monday it is important that citizens know the ECB will uphold its mandate and raise rates at the right time to stop potential inflationary dangers. Mr. Weidmann also played down risks to price stability, saying neither inflation nor deflation was the ECB’s main scenario. http://on.wsj.com/1jY7rkm

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.